EU, US promote alternative projects, following South Stream failure

The cancellation of the South Stream pipeline project will not make the European Union more vulnerable to shortages caused by Russia cutting off gas to the Ukraine, senior EU and US officials said yesterday (3 December).

Diplomats met in Brussels for the EU-US Energy Council, held two days after Russian President Vladimir Putin ditched the plan to pipe natural gas through the Black Sea to Bulgaria, Serbia, Hungary, Slovenia and Austria.

The meeting was attended by the EU’s foreign affairs chief Federica Mogherini and US Secretary of State John Kerry. The latest Council was a show of unity against Russia’s use of energy supplies as a political tool.

Speaking afterwards, senior EU and US officials said the pipeline would have reinforced the dominance of Russian gas at a time when diversification of suppliers and routes were needed.

A senior EU official said, “South Stream did not represent diversification, it’s an alternative route that’s all. It bypasses Ukraine but it is the same gas.”

A US senior official said South Stream was discussed at the meeting. “South Stream was not seen as project that necessarily supported diversification for the region.”

Alternative projects

Projects in the Baltic region, such as the “Freedom” floating liquefied natural gas (LNG) terminal in Lithuania, a new gas interconnection agreement between Finland and Estonia, and LNG terminals in Helsinki and Tallinn, were a model that should be copied in south eastern Europe, the official said.

LNG is not transported by pipes, making it a possible alternative to natural gas supplies and LNG producers as an alternative supplier to Russia.

“[The Baltic region] (is) a real example of taking an area that is an energy island that is dependent, and transforming it into one of the most diversified. It’s not there yet, but it is certainly on its way,” the US senior official added.

South Stream would have supplied Russian gas to the EU, without going through Ukraine. The majority of Russian gas imports to the EU, about 30% of its annual needs, goes through Ukraine. In 2009, Russia turned off the taps, causing shortages in the EU.

Energy security has been a hot topic ever since and a priority for policymakers since the Ukraine crisis worsened, highlighting the EU’s dependence on Russian gas.

Putin blamed the EU for the project’s failure, which was suspended by Bulgaria as a result of European Commission pressure. The EU executive had concerns over whether the plan had breached EU public procurement laws.

“We have been very clear in our EU energy sector strategy regarding South Stream. This project should be suspended, that was our position, and also revisited, in the light of energy security,” a senior EU official said.

Countries such as Bulgaria and Serbia have demanded compensation, but officials said that was an internal EU matter and not discussed with the Americans.

Turkey

The cancellation of South Stream will make Turkey a vital gas hub. Russia and Turkey have reached a preliminary agreement to start work on an alternative pipeline to South Stream in Turkey that would terminate at a gas-distribution hub on the Greek border.

A senior EU official said their analysis was valuable, but the EU was in charge of developing new policy and measures.

“There is no doubt regarding the political will of the European Commission or the EU to act on energy security. Energy security will probably be the first priority of the energy union because it’s a sort of pre-condition,” the official said.

After citing the speedy implementation of the reverse flow project in Slovakia, which enables Russian gas in the EU to be sold to the Ukraine, the official added, “We will be ready to accelerate things based on the measures we have outlined.”

Another senior EU official said, “Europe will be dependent on Russian gas, if you want to use that term, as long as it is cheaper than anywhere else.

“That’s fine. The important thing is to make sure that when that is no longer the case or the day there is a reason that gas doesn’t arrive, you can get your supply somewhere else.”

Background

On 1 December, Russia scrapped the South Stream pipeline project to supply gas to southern Europe, without crossing Ukraine, citing EU objections, and instead named Turkey as its preferred partner for an alternative pipeline.

South Stream is a Russian sponsored natural gas pipeline. As planned, the pipeline would run under the Black Sea to Bulgaria, and continue through Serbia with two branches to Bosnia and Herzegovina and to Croatia. From Serbia the pipelines crosses Hungary and Slovenia before reaching Italy [see map]. Its planned capacity is 63 billion cubic metres per year (bcm/y).

The key partner for Russia's Gazprom in the South Stream project is Italy's largest energy company, ENI, and Germany's Wintershall, a subsidiary of BASF.